Custom, Excise & Service Tax Tribunal
Shree Organo Chemicals Ahd P Ltd vs Ahmedabad-Ii on 8 February, 2019
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
West Zonal Bench AHMEDABAD
COURT NO. I
Appeal No. E/12027/2018 -SM
[Arising out of Order-in-Appeal No. OIA-AHM-EXCUS-002-APP-411-17-18 dated
24.04.2018 passed by Commissioner (Appeal) of Central Excise & ST, Ahmedabad]
M/s. Shree Organo Chemicals Ahmedabad P. Ltd : Appellant
vs.
Commissioner of Central Excise & ST, Ahmedabad : Respondent
Appearance:
Shri Naimesh K. Oza, Advocate for the Appellant
Shri S.N. Gohil, Superintendent (AR) for the Respondent
CORAM:
Hon'ble Mr. Raju, Member (Technical)
Date of Hearing/ Decision : 08.02.2019
Final Order No. A/10252 / 2019
Per : Raju
This appeal has been filed by M/s. Shree Organo Chemicals
Ahmedabad Private Limited against the demand for reversal of amount
under Rule 6 of Cenvat Credit Rules in respect of job work activities
conducted by them for principal manufacturer.
2. Ld. Counsel pointed out that they are engaged in the manufacture of
Dyes and Chemicals and they also undertake job work activities for others
and availed Notification No. 214/86-CE. The raw materials supplied were
under Rule 4(5)(a) of Cenvat Credit Rules, 2004. Ld. Counsel pointed out
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Appeal No. E/12027/2018 -SM
that Revenue is seeking to invoke Rule 6 of Cenvat Credit Rules, 2004 for
manufacturing of intermediate product undertaken by them and in respect
of which they have claimed exemption notification 214/86-CE. Ld. Counsel
has relied on the decision of this tribunal in the case of D.M. Brass Extrusion
and others- Order No. A/11274-11287/2018 dated 28.06.2018.
3. Ld. AR relied on the impugned order. He vehemently argued that the
activity of job work undertaken by the appellant is specifically exempted
from service tax vide Notification No. 25/2012-ST dated 20.06.2012 (Serial
No. 30). The said entry would exempt service tax on the goods
manufactured under job work if the principal manufacturer discharged the
duty liability on the goods.
4. I have gone through the rival submissions. The issue is squarely
covered by the decision in the case of D.M. Brass Extrusion and others
(supra) wherein the Tribunal observed as follows:-
4. We have carefully considered the submissions made by both the sides
and perused the records. We find that the Revenue sought to recover the
amount as prescribed under Rule 6(3) of Cenvat Credit Rules, 2004 on the
ground that the goods manufactured by the respondents is exempted under
Notification 214/86-CE, therefore, Rule 6(3) applies. In this regard, we have
perused the 3rd Proviso to Rule 3(1) of Cenvat Credit Rules, 2004 which reads as
under:
Rule 3, Cenvat Credit - ....................................................................................................
............................................................................................................................................
........................................................................................................................... [Provided that the CENVAT credit shall be allowed to be taken of the amount equal to central excise duty paid on the capital goods at the time of debonding of the unit in terms of the para 8 of notification No. 22/2003-Central Excise, published in the Gazette of India, part II, Section (i), vide number G.S.R.265(E), 3 Appeal No. E/12027/2018 -SM dated, the 31st March, 2003] paid on - (i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004, including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004.
5. In view of the above explicit provision under the Cenvat Credit Rules even though the goods manufactured under Notification 214/86- CE, the Cenvat Credit in respect of inputs used in the said goods is admissible. Therefore, Rule 6(3) shall not apply in the present case. This issue has been specifically considered by the Larger Bench of this Tribunal in the case of Sterlite Industries (India) Ltd. (Supra), wherein the Larger Bench has passed the following order:
"2. The revenue is denying the Modvat credit to the present job worker on the grounds that the inputs were used in the manufacture of the goods which were cleared without payment of duty. Pausing here for a second, let us take a situation where the basic inputs is sent by the principal manufacturer after debiting the Modvat credit taken by him. The job worker takes the credit of the same his factory, utilises other inputs procured directly by him after taking the Modvat credit on the same and clear the processed goods to the principal manufacturer on payment of duty and the principal manufacturer takes the credit of the same in his factory and utilises such credit for payment of duty on his final products at the time of clearance. In such a situation, there can be no objection or dispute by the revenue as regards the admissibility of the credit on the inputs received directly by the job worker and utilised in his factory. The only effect of the above procedure adopted by the principal manufacturer and the job worker would be additional paper work. It is basically to avoid such a situation the procedure under Rule 57F(3) has been enacted. As rightly observed by the earlier decision's the mechanical application of Rule 57C which destroys the basic benefit intended to be extended to the assessee should be avoided. If the interpretation adopted by the revenue is upheld, the benefit otherwise intended to be given will get frustrated apart from leading to discriminatory situation, where the manufacturer has himself processed the inputs and in the other case were he is sending it to the job worker.
3. We are also in agreement with the appellant's contention that Rule 57C debars taking of credit in respect of the inputs used in the manufacture of the final product, if final product is exempted from the whole of duty of excise leviable thereon or chargeable to nil rate of duty. As such, to attract the provisions of Rule 57C, two situations in respect of the final product should be satisfied. Either the final product should be exempted, which situation can arise only when there is an exemption notification issued under Section 5A of the Central Excise Act or the final product is chargeable to nil rate of duty. Expression chargeable to nil rate of duty or exempted from whole of duty was considered by the Tribunal in the case of Orissa Synthetics Ltd. v. Collector of Central Ex. [1995 (77) E.L.T. 350 (Tri.)] and after taking note of the Ministries clarifications issued vide Circular No. 10/75/CX. 6, it was held that clearance 4 Appeal No. E/12027/2018 -SM under goods under provision of 191BB for export without payment of duty would not get covered by the above expression. Reference was made to the advice received from the Ministry of Law dealt in the paragraph of 9 in the said decision. It was opined in the said letter of the Law Ministry that the term 'exempted' has a definite connotation. The same as attributed to the notification issued by the Central Government. Similarly, the chargeable to nil rate of duty would refer to the tariff rate being nil and the goods cleared in terms of provision of Rule 199BB would not be covered by the said expression inasmuch as the same are not chargeable to nil rate. In the present case, we find the job worker could have cleared the goods on payment of duty and manufacturer could have claimed credit of the same. It is only under the special procedure laid down in terms of the Rule 57F(3) that the duty does not get paid at the job worker's end at the time of clearance of the goods, but ultimately gets paid at the manufacturer's end. In these circumstances, we are in agreement with the decision rendered in the case of Bajaj Tempo and Jindal Polymers.
3. Apart from the above two decisions, we also note that identical view was taken in the case of Shakti Insulated Wires Ltd. v. CCE & C, Mumbai-V [2002 (149) E.L.T. 668 (Tri.) = 2002 (51) RLT 115 (CEGAT-Mum)] & also in the case of CCEx, Jaipur v. Noorani Textiles Mills [2000 (122) E.L.T. 744 (Tribunal)].
4. In only case of Escorts Ltd. v. CC Ex, Delhi [2003 (160) E.L.T. 623 (Tri-Del.)] while interpreting Rule 57C of the Central Excise Rules, the Tribunal rejected the appellants claim of Modvat credit of duty paid on the inputs used in the manufacture of the parts, which were cleared without payment of duty to, appellant's other unit under Chapter X procedure and utilised in the manufacture of tractor which were cleared on payment of duty by observing that since no duty was paid on the part at the time of clearance, Rule 57C will apply and no Modvat credit would be admissible. However, the said decision was subsequently reversed by the Supreme Court as reported in Escort v. C.C.Ex.
[2004 (171) E.L.T. 145 (S.C.)]. For appreciation, we reproduce paragraphs 8 & 9 of the said decision.
"8. It is to be seen that the whole purpose of the Notification and the Rules is to streamlines the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rule 57D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where intermediate product may also come into existence. Thus in cases where intermediate product comes into existence, even though no duty has been chargeable to Nil rate of duty, credit would still be allowed so long as duty is paid on the final product. 9. In cases of manufacturers like the Appellants the final product is the tractor. The intermediate product would be parts which are manufactured for being used in the tractor. In such a case the parts would not be the final product. Thus Rule 57C would have no application. The mere fact that the parts are cleared from one factory of the Appellants to another factory of the Appellants would not disentitle the Appellant from claiming benefit of Notification No. 217/86-C.E., dated 2nd April, 1986. As stated above, the Notification itself clarifies that the inputs can be used within the factory of production or in any other factory of the same manufacturer."
By applying the ratio of the above decision, it becomes clear that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Inasmuch as, the matter stands decided by the Honourable Supreme Court, we would hold in favour of assessee.
5Appeal No. E/12027/2018 -SM
5. As regards the decision in the case of Alpha Lavan laying down that the Modvat credit could be claimed in such a situation, we find the earlier decision of the Bajaj Auto was not followed. However, in view of the facts that the ratio of Bajaj Auto decision stands approved by the Supreme Court decision in the case of Escort Ltd. referred supra, we are of the view that the Alpha Lavan is no longer good law.
6. In view of the foregoing, we answer the reference in favour of the assessee. The papers may be placed before the original Bench for passing the appropriate orders."
6. In view of the 3rd Proviso to Rule 3(1) of Cenvat Credit Rules, 2004 and the Larger Bench judgment in the case of Sterlite Industries (supra), the issue is no more res-integra, accordingly, the impugned orders setting aside the demand are legal and correct which do not need any interference. We, therefore, upheld the impugned order and dismiss the Revenue's appeals."
5. Ld. AR has sought to rely on the decision in the case of Hema Engineering Industries Limited vs. CCE &ST, New Delhi - 2017 (5) GSTL 43 (Tri. Del.). In the said case the exemption was availed under Notification No. 8/2005-ST. In the said decision, the decision in the case of Sterlite Industries (I) Limited - 2005 (183) ELT 353 (Tri. LB) and the case of JBF Industries vs. Commissioner - 2014 (34) STR 345 (Tri.) have been distinguished. Thus the facts in the said case are different. In view of the above, I do not find that the said decision is relevant in the instant case.
6. Thus following the decision of Tribunal in the case of D.M. Brass Extrusion and others (supra), the appeal is allowed.
(Order dictated and pronounced in the open court) Raju Member (Technical) KL